Commissioner Of Income-Tax-I, Ludhiana v. M/S Grewal Brothers

of 2010 *** IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH Income-tax Appeal No.662 of 2010Date of decision: 5.4.2011 Commissioner of Income-Tax-I, Ludhiana ...Appellant Versus M/s Grewal Brothers ...Respondent CORAM: HON'BLE MR.JUSTICE ADARSH KUMAR GOEL HON'BLE MR.JUSTICE AJAY KUMAR MITTAL Present: Mr. Rajesh Katoch, Senior Standing Counsel for the appellant.**** Adarsh Kumar Goel, J. 1.This appeal has been preferred by the revenue underSection 260A of the Income Tax Act, 1961 against order dated29.1.2010 passed by the Income Tax Appellate Tribunal, ChandigarhBench 'A', Chandigarh in ITA No.883/CHD/2009, for the assessmentyear 2006-07, claiming following substantial questions of law:- “i)Whether on the facts and circumstances of thecase, the Hon'ble Income Tax Appellate Tribunal isjustified in law in holding that the provisions of Section194C are not applicable on the payments ofRs.54,66,942/- made by the firm to its partners onaccount of transportation charges for use of trucks ownedby the partners? ii) Whether on the facts and circumstances of thecase, the Hon'ble Income Tax Appellate Tribunal is *** justified in law in deleting the addition of Rs.51,61,183/-made in view of the provisions of section 40(a)(ia) of theIncome Tax Act, 1961 as no tax at source was deductedby the firm as required under section 194C of the IncomeTax Act, 1961? 3.The assessee is engaged in business of transport. Itentered into a contract with Hindustan Petroleum Products andIndian Oil Corporation for carriage of LPG. From the payment madeto it, the companies deducted tax. The assessee firm passed on thetransportation work to its partners and made the payment receivedfrom the said companies to its partners after deducting 3%commission as charges for the firm having secured the contract. Theassessing officer held that in giving of the contract of transportationby the firm to the partners there was a sub contract and the firm wasliable to deduct TDS out of the payment made to the partners as subcontractors in absence of which the payment made to the partnerswas liable to be disallowed. On appeal, the CIT(A) upheld the plea ofthe assessee that there was only one contract of transportation to beexecuted by the partners for the companies and the firm only actedas an agent for securing the contract and earned 3% commissionand thus, there was no separate sub contract between the firm andthe partners. This view has been upheld by the Tribunal as under:- “The provisions of section 194C of the Act areattracted when there is a contract, whether inwriting or oral, between two entities and anypayment is made in lieu thereof. We find support *** from the ratio laid down by the Hon'ble HimachalPradesh High Court in Sirmour Truck OperatorsUnion Vs. CIT (supra) wherein it was held thatfreight paid by the association of persons to truckowners, who were of the members of theassociation of persons, was not liable for deductionof tax at source under section 194C of the Act. 14.Further, in CIT Vs. Ambuja Darla KashlogMangu Transport Coop Society 2009) 31 DTR (HP)49, it was held that the payment by Society/AOP tomember truck owner is not a sub contract liable fordeduction of tax at source u/s 194C(2) of the Act.Drawing strength from the ratio laid down by theHimachal Pradesh High Court in Sirmour TruckOperators Union Vs. CIT(supra) and Ambuja DarlaKashlog Operators Union Vs. CIT(supra), we holdthat though the assessee firm and its partners areseparate juristic identities but in the absence of anycontract/sub contract between the two, wherein theassessee firm retains only 3% as commission andtransfers the balance to the respective accounts ofthe partners who in turn are owing the said trucks, isnot liable for tax deduction at source under section194C of the Act as it is neither a payment made to acontractor or a sub contractor.” We have heard learned counsel for the parties. *** 5.Learned counsel for the revenue submits that since thefirm and the partners were separate persons under the income taxlaw and had separate income, the firm was liable to deduct tax onpayment made to its partners as sub contractors. There was adeemed oral agreement between the firm and the partners forexecution of transportation contract by the partners and thus merefact that the companies had made deduction of tax from the paymentmade to the firm was no justification for the firm for not deducting taxfrom the payment made to the partners who were infact executingthe work as sub contractors. 6.We are unable to accept the submission. No doubt thefirm and the partners may be separate entities for income tax and itmay be permissible for a firm to give a contract to its partners anddeduct tax from the payment made as per Section 194C, it has to bedetermined in the facts and circumstances of each case whetherthere was any separate sub contract or the firm merely acted asagent as pleaded in the present case. Case of the assessee is thatit was the partners who were executing transportation contract byusing their trucks and payment from the companies was routedthrough the firm as agent. The CIT(A) and the Tribunal accepted thisplea on facts. Once this plea was upheld, it cannot be held that therewas a separate contract between the firm and the partners in whichcase the firm was required to deduct tax from the payment made toits partners under section 194C. The view taken by the Tribunal isconsistent with the view taken by the Himachal Pradesh High Courtin Commissioner of Income Tax Vs. Ambuja Darla Kashlog *** Mangu Transport Co-op. Society (2009) 227 CTR (HP) 299 andjudgment of this court in Commissioner of Income Tax Vs. UnitedRice Land Ltd. (2008) 217 CTR (P&H) 332. The matter beingcovered by earlier judgment of this Court, no substantial question oflaw arises. 7.Accordingly, the appeal is dismissed. ( Adarsh Kumar Goel) Judge April 05, 2011Pka (Ajay Kumar Mittal) Judge